Govt Intervenes to Curb Gas Price Hike

The government has decided to intervene in a fractious gas price dispute, following protests from corporate buyers that tariff hikes by state-controlled gas distributor Perusahaan Gas Negara would hurt their bottom line.

Evita Legowo, the oil and gas director general at the Energy and Mineral Resources Ministry, said the government was reviewing the new prices set by PGN for industrial consumers.

“The government needs to listen to its stakeholders. We are reviewing the gas price,” Evita said.

According to a letter from PGN, the gas price for industry buyers in Jakarta, Bogor, Bekasi, Karawang and Banten rose to $10.13 per million British thermal units (mmbtu) on May 1, up from $6.80.

PGN said it decided to increase the gas price because it had to pay more for gas from producers, including US energy giant ConocoPhillips and Indonesian state-owned oil and gas producer Pertamina.

Evita said a 2009 regulation gave PGN the authority to set gas prices.

But a clause in the regulation says that in setting the gas price, PGN must consider affordability for consumers, the economical price and reasonable margins.

“Based on this regulation, the government is allowed to intervene in the gas price set by PGN, despite the company being also partly owned by public [investors],” Evita said.

She pledged that by the end of June the government would announce a lower gas price for industrial consumers, but one that did not disadvantage PGN.

Last Tuesday, corporate buyers agreed to accept the PGN price rise on the condition that they received a stable supply and a guarantee that the price would not increase further for at least two years.

Achmad Widjaya, the chairman of the committee for energy and gas affairs at the Indonesian Chamber of Commerce and Industry (Kadin), demanded the government act firmly because the lack of gas supply was hurting industrial profits.

Indonesian Employers Association (Apindo) head Sofyan Wanandi said the gas price increase was burdening manufacturers because it meant steel, glass, ceramics, porcelain, textiles and food producers had to spend up to 30 percent more on gas.

He suggested the increase be implemented gradually, at the rate of 11 percent each year through 2014.

Rudi Rubiandini, the newly appointed deputy energy and mineral resources minister, said the government would issue a regulation that sets the selling price of gas to industrial buyers.

He said the regulation was required because PGN, the monopoly gas distributor, was not 100 percent owned by the government. PGN is 57 percent government-owned with public investors holding the balance.

Indonesia, the world’s third-largest exporter of liquefied natural gas, has been trying to renegotiate the price paid to gas producers in the country.

This was done in a bid to reflect global gas prices in transactions and thereby increase revenues received by both producers and government under the production split scheme. PGN, as the buyer, typically passes on the higher prices to consumers.

In regard to whether the government would set a domestic market obligation to ensure local industry gets enough gas, Evita said it was unlikely to be done in “a short time” partly due to inadequate gas distribution infrastructure and because the government must honor gas sales contracts with foreign buyers.

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